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Pierre Fabre Dermo Cosmétique SAS: a general ban on internet sales in a selective distribution agreement amounts to a restriction on competition by object, unless objectively justified

Pierre Fabre Dermo Cosmétique SAS (‘Pierre Fabre’) manufactures and markets cosmetics and personal care products. It has several subsidiaries, including Klorane, Ducray, Galénic and Avène laboratories. The products distributed under those brands, are mainly sold through pharmacists on the European market. Distribution contracts for those products stipulate that sales must be made exclusively in a physical space, in which a qualified pharmacist is present. Consequently, all forms of Internet sales are de facto excluded. In June 2006, the French competition authority opened ex officio investigations in the distribution sector for cosmetic and personal care products. As a result, it started administrative proceedings against Pierre Fabre leading to the conclusion that the ban imposed by Pierre Fabre on its authorised distributors on selling via the internet amounted to a restriction of competition contrary to article [101 TFEU] and Article L.420- 1 of the Commercial Code. Pierre Fabre was ordered to remove all terms from its distribution agreements that are equivalent to a ban on internet sales of its products and had to make express provision in its contracts for an option for its distributors to use that method of distribution.

Pierre Fabre brought an action for annulment, and alternatively, for amendment of the contested decision before the Cour d’appel de Paris, that referred the following question to the Court of Justice for a preliminary ruling: ‘Does a general and absolute ban on selling contract goods to end-users via the Internet, imposed on authorised distributors in the context of a selective distribution network, in fact constitute a “hardcore” restriction of competition by object for the purposes of Article 81 (1) EC [101 (1) TFEU] which is not covered by the block exemption provided for by Regulation No 2790/1999 but which is potentially eligible for an individual exemption under article 81 (3) [101 (3) TFEU]?’

The Court of Justice rendered its judgment on 13 October 2011.16 First, the Court noted that it is clear that the contract at issue de facto prohibits authorised distributors from selling through the internet, and considerably reduces the ability to sell the contractual products to customers outside the contractual territory of activity. Subsequently, the Court recalls its earlier case law regarding selective distribution agreements.17 Such agreements necessarily affect competition in the common market and in the absence of an objective justification they are considered as a restriction by object. However, the organisation of such a network is not prohibited by article 101 (1) TFEU, to the extent that resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion, that the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use and, finally, that the criteria laid down do not go beyond what is necessary.18 Necessarily, given the nature of a preliminary reference, it is for the referring court to examine whether the clause at issue satisfies the aforementioned conditions. The Court, however, provides the point of interpretation of European Union law which enables the referring court to reach a decision.

In light of the above, the Court finds that Pierre Fabre has chosen its resellers on the basis of objective criteria of a qualitative nature. Moreover, the criteria are laid down uniformly for all potential distributors. As for as the alleged legitimate aim that is pursued by de facto ban on internet selling, the Court’s guidance is rather vague. It just makes an (unmistakable) reference to its former case law where the Court has found the need to provide individual advice to the customer to ensure protection against the incorrect use of non-prescription medicine and contact lenses, not to justify a ban on internet sales.19 In addition, contrary to Pierre Fabre’s claim, the aim of maintaining a prestigious image cannot constitute a legitimate aim and ,therefore, cannot justify a finding that the clause at issue does not fall within the scope of article 101 (1) TFEU.

Subsequently, the Court turns to the points of assessment under 101 (3) TFEU. It concludes that the selective distribution contract at issue could not benefit from the vertical block exemption since this exemption does not apply to vertical agreements which directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object the restriction of passive sales to end users by members of a selective distribution system operating at the retail level of trade, without prejudice to the possibility of prohibiting a member of the system from operation out of an unauthorised place of establishment.20 A clause de facto prohibiting the internet as a method of marketing, such as the clause at issue, has at the very least as its object the restriction of passive sales to end users wishing to purchase online and located outside the physical trading area of the relevant member of the selective distribution system. Contrary to Pierre Fabre’s claim, the Court states that a prohibition on internet selling cannot be equated with a prohibition to operate out of an unauthorised place of establishment per the meaning of article 4 (c) of Regulation No 2790/1999. Indeed, ‘place of establishment’ only concerns outlets where direct sales take place and should not encompass the place from which internet sales services are provided. As an undertaking, in all circumstances, can qualify for an individual exemption on the basis of article 101 (3) TFEU, it is not necessary to give a broad interpretation to provisions that bring a restrictive agreement or practice within the block exemption. Regarding the assessment whether the selective distribution system can qualify for an individual exemption, the Court states it does not have sufficient information available to examine the issue. Therefore, it cannot provide further guidance to the referring Court.

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